Fun With the Fiscal Cliff

Hoofy & Boo tackle the nation's pending crisis/opportunity.

MINYANVILLE ORIGINAL Hi there, ladies and gentlemen, and welcome to the opening of the Minyanville Debate Series with Hoofy & Boo. I'm your moderator, Jonah Loeb, star of about half my family's home movies and Twitter stalker of Molly Ringwald. Hi, Molly! Today we'll be discussing the fiscal cliff, the looming financial perfect storm of expiring tax cuts, new spending cuts, and a miserable economy.

While some analysts are already stocking their panic rooms with saltines, Campbell's Chunky Soup, and gin, others are trying to see the bright side of the crisis.

Jonah: Joining me on the optimistic side of the debate is our resident bull, Hoofy.

Hoofy: Hey there.

J: And for the, well, less optimistic side, our resident bear, Boo.

Boo: Hi!

J: Now, before we get started, I've got to ask: Are you both house-trained?

H: I have good days and bad days.

B: Yeah, we're working on it, especially when I'm not in the woods.

J: Fair enough. So the first question goes to Boo: There's been a lot of dire talk about the fiscal cliff. Can you explain what's got everyone so scared?

B: Absolutely. One thing that doesn't bode well for the stock market is that the two issues-the expiration of the tax cuts and massive spending cuts-make each other worse. The federal government pours a huge amount of money into the economy and if that lets up, there will be less money in the pockets of Americans…which is also what the tax cuts will do. That lack of spending could then feed on itself and make the economy even more stagnant.

J: Hoofy, a retort?

H: There are a lot of reasons to be optimistic-yes, optimistic-about the fiscal cliff, and Boo has once again exaggerated the potential pitfalls. First, the cliff can be easily avoided by an extension of the tax cuts. If Americans have money to spend, the economy won't tank the way the naysayers warn that it will. Besides, the potential budget cuts don't include vital things like veterans' benefits or Social Security, so Americans who rely on those won't be left out in the cold.

B: You haven't addressed the huge portion of the GDP that comes from the federal government! It's hard to be happy-go-lucky and sing "Yankee Doodle" when the national fife-and-drum budget is at zero.

H: Wait, what?

J: Yeah, I don't follow either. Boo, if taxes are down and spending is down, what's the problem?

B: Okay, it was a weird figure of speech, but hear me out. The government's involvement in the economy is a major factor in investor confidence. Even if the tax cuts get renewed, people aren't going to be confident enough in the economy to spend that money.

H: What do you mean, "if" the tax cuts get renewed? It's an almost surefire way to avoid the major consequences of this crisis!

B: Oh, Hoofy, it must be so nice living in Nirvana. Send me a postcard sometime and tell Kurt I said hi!

H: Oh my God, you are just like your mother.

J: Whoa! Okay, both of you have to calm down.

B: Aww, don't worry. Hoofy just sees red sometimes.

H: I've told you before that I find that figure of speech racist!

B: Bulls aren't a race!

J: Listen, both of you! I can't even handle physical confrontations with human beings, so if you two get out of hand, I'm going to have to end the debate. Keep your voices quiet and your comments civil!

H: Okay. Deep breaths. I'm in my happy place. Namaste...

B: Sorry. It's just that optimism gets me so damn frustrated.

H: Why's that, Boo? Help me understand.

B: Well, our elected officials have been unable to compromise over the last several years. Republicans in Congress have threatened to block anything that President Obama tries to accomplish and their unhappiness over getting trounced in the elections won't help matters. I'm sorry but I don't think the tax cut debate gets resolved in time to avoid the fiscal cliff.

H: But don't you think that with the issue of Obama's reelection behind us, Republicans in Congress might be more willing to compromise? It's no secret that they don't like him, but he's a lame duck now and the fiscal cliff, if it arrives, is in nobody's best interest.

B: Unfortunately, the Democrats might be so confident from their victory that they decide not to reward the Republicans for bad behavior. Paul Krugman is just one of many voices on the left calling for the president to call the GOP's bluff on the fiscal cliff. At this point, anyone offering any sort of compromise is seen as some sort of blood traitor!

J: No exclamation points. You lost that privilege.

B: Sorry.

H: Here's a question, Boo. Don't you think the prospect of going over the cliff is kind of exciting?

B: This isn't an economic bungee jump. Once we go down, we're not coming back, and it's long overdue. Free markets will be free markets over the course of time; inherent in that is that you can't have the good without the bad. That's the entire point of capitalism!

H: Oh, I don't think that's necessarily true. We've been arguing all year about what it means to be "rich" in America. Democrats are saying it begins at $250,000 a year, but Republicans have been saying that such a low bar might hurt small business owners. What if that us-versus-them debate were replaced by a shared rebuilding process?

J: So what would going over the cliff mean?

H: Well, for all the scary talk about it, it's basically an improvised austerity package which exacts a toll from both sides of the aisle. Raising taxes and cutting spending is exactly what deficit hawks have been encouraging for decades. Going over the cliff could see our deficit reduced from this year's $1.1 trillion to just $200 million; while that would be a bitter pill for the markets, it would be overdue medicine for our nation.

B: At the cost of what amounts to a reset of our nation's economy, with who-knows-what effect on the global economy?

H: Well, more economists are arguing that our current economic model is unsustainable. Maybe our elected officials will find common ground, and there's reason to expect that they might. And if not, maybe a hard reset is just what our economy needs. Either way, I would argue that if 2008 was the official beginning of the financial crisis, we're five years closer to the end of the bear-and the beginning of a secular bull market-than we were.

J: Okay, that's all we have time for today. You've both made some great points, or at least I assume you have. Mostly, I heard a lot of snorting and roaring. Finally, though, I'd like to see if we can find some common ground here, and to that end, I'll pose one more question to you both: human flesh?

B: Delicious.

H: Not delicious.

J: You guys are impossible. From all of us here at Minyanville Media, keep calm and carry on.